the service providers we have in the room—the directors, lawyers,
auditors and fund service providers. That’s also one of the key reasons
Cayman is continuing to be successful, because you have the support
of the investment managers and the investors as well.
Trinda Blackmore: With new managers, it’s usually their institutional
investors saying Cayman is the choice because of their comfort and
familiarity with the jurisdiction. There are some low-cost domiciles that
may be better for certain things where cost is a factor, like multiple
SPVs, but outside of that I think we continue to consistently see
Cayman as the favoured domicile.
Cayman avoided being on the EU
blacklist but needs to address certain
things around economic substance.
Can you give us an update on that?
Rivers: Cayman is not on the EU’s non-cooperative list because
we demonstrated our cooperation on tax transparency, as we have
automatic exchange of tax information through CRS, as well as on
request. Our transparency also is recognised by the OECD.
I wanted to underscore that for people to understand and appreciate
that all the efforts we’ve taken in that regard have been recognised.
Before we go into the economic substance question, it’s also important
to mention our cooperation in tackling base erosion and profit shifting
(BEPS), another OECD initiative that has been incorporated into the EU
blacklisting process. Cayman has signed up to, and will be participating,
in the country-by-country reporting under that particular regime. As such,
the EU and OECD recognise our cooperation with BEPS.
6 CAYMAN FUNDS | 2018
The only area that the EU had some lingering concerns over is the
more nebulous definition of fair taxation, and in particular the issue of
substantial economic presence. With the type of products we have in
the Cayman Islands we, and indeed all of the Crown Dependencies
and Overseas Territories assessed, fell into that category.
We’re therefore continuing our engagement with the EU. We have
committed to work with them to determine what would be considered
appropriate economic presence, given the different types of products
we offer, which besides funds include special purpose vehicles,
private wealth and family offices, and reinsurance.
Even within our own financial services industry, there can’t be a
one-size-fits-all model in terms of the definition of what would be
appropriate substantial economic presence. This is something that
we are working very closely with the EU to discuss the variation in our
industry, and to determine what would be appropriate to ensure that
we can continue to thrive as a jurisdiction.
Are you hoping that the EU will
define what it means by economic
substance?
Rivers: The challenge is that some of the EU countries have a
very different economic model from ours, and helping them to
understand this is vital. That one-size-fits-all model just does not
work and it would be harmful to approach it this way. Indeed, from
my understanding there isn’t even a uniform model as it relates to
substance requirements that have been adopted by the EU member
states themselves.
We are very cognisant of the fact that there are nuances, even
within the financial services industry, that we need to be aware of.
We’re working very closely with industry through the work of Cayman
Finance and through the broader industry associations to hash out
what those considerations will be as the dialogue continues.
Scott: It’s remarkable what this jurisdiction has been able to achieve in
this space. I also see it as an opportunity. Cayman is uniquely placed not
only to be the recipient of what other people define substance to be,
but also to influence that process in a very pragmatic and positive way.
When we look at the hedge fund or private equity space, we’re
uniquely placed doing 50, 60, 70 percent of the offshore structures
through Cayman. There’s no other international financial centre that
has the same type of mix that we have, and a very tax-transparent,
very neutral platform.
We don’t have things like double taxation treaties which are some
the main concerns of the EU. We have a real opportunity with the
work, with the relationships that government has, the role on global
forums to help shape pragmatic definitions for these types of global
financial services transactions.
Ultimately we want to develop definitions that work not only for
Cayman, but for London, New York and all financial centres around
the world and look to have those endorsed from an OECD perspective
which will then stabilise some of the volatility of definitions. We really
need a comprehensive global substance definition.
Michelle Bahadur: The OECD has established an informal working
group to explore the issue of what economic substance means, in the
context of the EU code of conduct group. The OECD has been working
in this area for 20 years, so there is a fair bit of jurisprudence in this area.
The OECD is working to help to flesh out these issues, which will
certainly be a big help in maintaining a level playing field. After the
code of conduct group meets next week, we may have more detail on
their thinking on economic substance.
“We must look beyond shortterm
decisions and take a
proactive approach that finds
a solution that works for all
financial centres.” Jude Scott